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Asymmetrical Ignorance (Wonkish and Self-Indulgent)

Just a brief note on a couple of things that came up in comments on my Nobodies post.

The first is, isn’t my rejection of real business cycle theory just like the failure of freshwater economists to know about New Keynesian theory?

No, not at all. I know that RBC exists; I know how it works; I just think it’s wrong. That’s very different from the reaction of the freshwater types to Keynesian arguments, which makes it clear that they
just don’t know that modern Keynesianism exists, and have no idea what underlies the arguments people on the other side are making. This is, by the way, not a new asymmetry: it’s been clear for decades
that a grad student from Princeton or MIT, asked how an equilibrium business cycle type would answer a question, can do that; but a student from Minnesota or (less reliably) Chicago hasn’t the least idea
how alternative models work.

Second, some people raise the question of Japan. How do I make sense of the failure of low interest rates and budget deficits to end deflation there?

Um, folks, the whole point of the liquidity trap analysis is that sometimes even a zero interest rate isn’t low enough; that’s the Japanese lesson. So I’m supposed to consider that view refuted
because, in Japan’s case, a zero rate has turned out not to be low enough?

As for fiscal policy: again, the whole message of the analysis is that the fiscal expansion has to be large enough to close the output gap — which is why I was tearing my hair out, from day one, over the inadequate
scale of the Obama stimulus. And while Japanese fiscal expansion has always been expansionary when tried (pdf), it was always stop-go,
never reaching the point of actually ending deflation.

More broadly, I do pay attention to contrary arguments and points of view. I don’t make economists who I consider consistently wrong-headed part of my daily reading, since life is short, but I check in whenever
I have reason to think that they’re making a case I need to take seriously. Regular readers may remember, for example, how I responded to fiscal policy critiques by Alesina and others — not by sneering
at their academic qualifications, not by pulling rank, but by explaining why I didn’t trust their evidence; a lack of trust borne
out a bit later by researchers at the IMF.

The point is that it’s OK to consider other economists, even a whole school of thought, wrong; what’s not OK is to be so closed-minded that you aren’t even aware that there are not obviously stupid
people who disagree with you.